Using mental models to overcome cognitive biases for leaders

Leaders and entrepreneurs are often faced with the challenge of making decisions that have long-term implications.

But they can be hindered by their own biases.

Unfortunately, it is not always easy to recognize these biases because humans are naturally prone to them. A major reason for this is that biases do help people make assessments and decisions quickly.

But the disadvantage is that they can lead to missed opportunities and mistakes in businesses.

The good news is that there is a way for leaders and entrepreneurs to overcome these cognitive biases: mental models.

Mental models provide an analytical framework that allows us to evaluate our thought processes so we can make better decisions as leaders or entrepreneurs.

By understanding how mental models work and applying them in decision-making scenarios, leaders and entrepreneurs can gain greater insight into their thinking patterns while also improving their judgment.

In this post, we'll look at ways to reduce biases with helpful tools that every entrepreneur or leader should use: mental models.

What are mental models?

Mental models are concepts, ideas, and theories that can be used to understand the world around us.

Whether you realize it or not, you operate and process your experiences using mental models.

And your mental models are likely based on your culture, parental influence, and other influences like the books you read, your peer relationships, and more.

For the most part, mental models are unconscious. But you can also choose mental models and logical frameworks deliberately, especially if you struggle with decision-making.

Mental models help you uncover and resolve unconscious biases you possess. Simply being aware of these models and applying them will go a long way to helping you process information rationally.

With different mental models, you'll find clarity and insights when you face difficult situations. And we'll look at examples of mental models that you can apply in everyday life to help you make the most effective choices with the limited information you have access to.

Mental models for decision-making and overcoming biases

Here are some mental models that we use without thinking you should be aware of. Simply look at different situations in everyday life to see how you can apply them and make better decisions.

Confirmation bias

Confirmation bias is when you focus on information that confirms what you already think. This can be dangerous in decision-making and leadership, leading to bad decisions.

To overcome this, simply question your existing assumptions and beliefs before coming to conclusions.

For example, a leader may think that marketing is the key to improving sales and when faced with ways to deal with declining sales, they selectively seek information that supports their preconceived belief.

They ignore evidence like user feedback about how the product needs new features and refuse to listen to other suggestions. As a result, they heavily invest in marketing campaigns and miss out on alternative strategies that could have gotten better results.

So, be open to other alternatives and challenge your own assumptions before making decisions.

Anchoring

Anchoring is when you rely heavily on a single piece of information when making decisions.

And typically, this information is the first data you come across in relation to the situation.

For example, a leader may get a quote for a job and assume that any other quotes they receive will be higher than this first quote.

But they fail to look around for the best deal and this can lead to the company paying more money than they need to.

To avoid this bias, use multiple sources of data and information to make your decisions.

Sunk cost fallacy

The sunk cost fallacy is when you continue to invest in something even though it's obvious the investment won't be fulfilled or yield any returns.

This model can apply to relationships, decisions, and investments that you no longer see value in.

For example, you may buy your supplies from a distributor for many years. And when your distributor is late with deliveries or charges more for the same products, you may decide to stay with them instead of looking for a better deal.

This is because you believe that you've put in too many years into your relationship with your distributor to change it. And that others may be as bad or worse. However, this could also be totally untrue. By indulging in the sunk cost fallacy, you put your business in a precarious position because you miss out on potential savings and better resources.

To overcome this bias, focus on the present and future prospects instead of the amount of effort you have already put into a situation.

And also, remember that every minute you continue to sink resources into something that won't yield a return is another moment wasted.

How to overcome biases and make better decisions through defining values

The truth is that there are no guaranteed choices and roadmaps to lead you to success. But you're far more likely to make better decisions in the dark if you set up guide posts in the form of values and goals.

Values, today, have become cliches in many businesses and are often touted in the form of a mission and vision statement.

But the reality is that values are more important than that.

Your values should reflect the kind of decisions you want to make, and they should be guiding principles that help inform your every decision as a business owner or leader. And it can impact every area from how to deal with interpersonal conflicts to what kind of products you build.

You're likely to face difficult situations like negative reviews, partner disagreements, employee issues, and product-related problems. And it can be mind-racking to know exactly what to do.

But having clear values can make all the difference - and it's a personal mental model that can serve as a compass in different scenarios.

Goals work the same way too. Knowing what you want and where you want to go in the long term can help you make better decisions and minimize potential biases.

Conclusion

Over all, it's clear that you have to be open-minded to keep from allowing your biases to lead you astray.

Set up mental models to challenge your thought patterns and help you make better decisions, even when the information is limited.

It can take time to get used to different mental models, but the rewards in terms of improved decision-making and leadership are well worth it.

The easiest thing you can do is to define your values and strive to live by them daily. This will ensure that you’re making optimized decisions even if you’re shooting in the dark.